Do you look for contrarian opportunities in earnings season? If so, here's a list you might be interested in.

We began by screening the stocks that will be reporting later this week (August 29-30) with weak sales trends by comparing growth in revenue to growth in inventory over the last year. We screened for stocks with negative sales trends, with slower growth in revenue than inventory over the last year. Since inventory represents the portion of goods not yet sold, slower growth in revenue than inventory is considered a discouraging sign.

We then screened for those that also appear undervalued relative to the Graham Number. The Graham Number is a measure of maximum fair value created by the "godfather of value investing" Benjamin Graham.

It is based off of a stock's EPS and book value per share (BVPS).

Graham Number = SQRT(22.5 x TTM EPS x MRQ BVPS)

The equation assumes that P/E should not be higher than 15 and P/BV should not be higher than 1.5. Stocks trading well below their Graham Number may be undervalued.

For an interactive version of this chart, click on the image below. Analyst ratings sourced from Zacks Investment Research.

1. Cascade Corp. (NYSE:CASC): Manufactures loading devices and replacement parts primarily for the lift-truck and construction industry. Market cap at $553.6M, most recent closing price at $49.65. Diluted TTM earnings per share at 5.46, and a MRQ book value per share value at 29.21, implies a Graham Number fair value = sqrt(22.5*5.46*29.21) = $59.90. Based on the stock's price at $49.65, this implies a potential upside of 20.65% from current levels.

Revenue grew by 3.72% during the most recent quarter ($141.24M vs. $136.18M year/year). Inventory grew by 18.52% during the same time period ($87.86M vs. $74.13M y/y). Inventory, as a percentage of current assets, increased from 34.09% to 38.69% during the most recent quarter (comparing 3 months ending 2012-04-30 to 3 months ending 2011-04-30). Will report August 30.

2. OmniVision Technologies Inc. (NASDAQ:OVTI): Designs, develops, and markets semiconductor image-sensor devices. Market cap at $836.21M, most recent closing price at $15.63. Diluted TTM earnings per share at 1.13, and a MRQ book value per share value at 14.53, implies a Graham Number fair value = sqrt(22.5*1.13*14.53) = $19.22. Based on the stock's price at $15.63, this implies a potential upside of 22.97% from current levels.

Revenue grew by -15.38% during the most recent quarter ($218.55M vs. $258.27M y/y). Inventory grew by 172.61% during the same time period ($291.34M vs. $106.87M y/y). Inventory, as a percentage of current assets, increased from 14.62% to 39.22% during the most recent quarter (comparing 3 months ending 2012-04-30 to 3 months ending 2011-04-30). Will report August 30.

3. Esterline Technologies Corp. (NYSE:ESL): Designs, manufactures, and markets engineered products and systems primarily for the aerospace and defense market, as well as for industrial/commercial and medical markets in the United States and Europe. Market cap at $1.63B, most recent closing price at $52.85. Diluted TTM earnings per share at 4.01, and a MRQ book value per share value at 52.37, implies a Graham Number fair value = sqrt(22.5*4.01*52.37) = $68.74. Based on the stock's price at $52.85, this implies a potential upside of 30.06% from current levels.

Revenue grew by 15.98% during the most recent quarter ($504.83M vs. $435.28M y/y). Inventory grew by 30.97% during the same time period ($413.86M vs. $315.99M y/y). Inventory, as a percentage of current assets, increased from 28.52% to 39.16% during the most recent quarter (comparing 3 months ending 2012-04-27 to 3 months ending 2011-04-29). Will report August 30.

BVPS and EPS data sourced from Yahoo! Finance, accounting data sourced from Google Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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